Analyzing International Relations and American Politics

In Defense of Government Intervention

I am about as neoliberal as they come. I’m a big fan of free trade, I support low taxes on middle-class families and businesses, and I generally believe that the private sector is more efficient. That being said, I think that there are very clear benefits to a mixed economy. Markets have a number of structural weaknesses and vulnerabilities, and government intervention is frequently required to keep the capitalist system running smoothly.

Ultimately, the two biggest problems with markets are that they are incredibly myopic and solely focused on profits. Without the government, there would be no public goods like public education, roads, sewage treatment plants, courts, and R&D funding. There also wouldn’t be regulation of externalities – economic impacts that don’t directly impact firms or consumers but have broader implications for society. For example, consider toxic waste dumping. A factory may not be adversely affected by dumping raw sewage and chemicals into a river, but there are very real economic and health costs that appear downstream (literally and figuratively). If the U.S. were to all but eliminate pollution taxes and get rid of the EPA – a plan endorsed by a number of prominent GOP politicians – it would actually end up costing the economy more by killing wildlife and poisoning American workers. In other words, just because a firm doesn’t factor in a cost doesn’t mean a cost doesn’t exist.

The market is also not always willing to invest in innovative new technologies because they are still underdeveloped. This is another area where government intervention is absolutely crucial. From GPS, to the internet, to fracking technology, the government’s fingerprints are all over the modern economy. Of course, the private sector innovated and perfected these technologies because they were able to quickly adapt and adjust to market pressures. Nevertheless, we wouldn’t have the modern knowledge economy that exists today if the government hadn’t invested in risky and expensive research. In short, the government has to prime the pump before the private sector comes in. The federal government essentially acts like an enormous investment bank, accepting high upfront costs to mature technologies that are then perfected and modified by the private sector. As Hacker and Pierson explain in their recent Foreign Affairs piece, “markets [are] like fingers: nimble and dexterous. Governments, with their capacity to exercise authority, are like thumbs: powerful but lacking subtlety and flexibility. The invisible hand is all fingers. The visible hand is all thumbs. One wouldn’t want to be all thumbs, of course, but one wouldn’t want to be all fingers, either. Thumbs provide countervailing power, constraint, and adjustment to get the best out of those nimble fingers.”

Finally, contrary to what Chicago economists would have you believe, the economy is not perfectly efficient. Transactions aren’t made in a vacuum. And while all firms are profit-maximizing, politics and nepotism still exist in the market. For example, the Georgetown basketball coach gets paid significantly more than the UNC basketball coach despite being a vastly inferior coach. I mean for goodness sake, Carolina gets to the finals of the NCAA Tournament and Georgetown doesn’t even make the NIT. Obviously perfect markets don’t exist. While basketball coaches probably aren’t that big of a deal, things like monopolization, nepotism, and acquisitions bribery are all potentially deadly practices that can undermine a well-functioning economy. Without government intervention, the innovative force of free enterprise will be crushed.

History demonstrates that government involvement in the economy doesn’t always lead to slow economic growth. For example, Britain had a debt to GDP ratio of 150% in 1840, but it’s hard to argue that that high amount of public debt hurt Britain. Indeed, the United Kingdom’s greatest days were still ahead of it. Conversely, when the U.S. practiced almost complete laissez-fair economics right before the Great Depression, it triggered the greatest economic calamity in the history of modern humanity. The free market is absolutely vital, but so is the government. I think there is certainly an argument to be made that certain parts of the U.S. government are too bloated, but I think the Ted Cruz dogma that “The less government, the more freedom. The fewer bureaucrats, the more prosperity” is ahistorical and intellectually bankrupt. The GOP is correct in challenging Sanders’ faith in the government’s ability to fix all problems. Now they need to realize that their blind faith in the market is equally absurd.